As wave traders, we highly depend on wave trading patterns to make decisions. We take our time and draw trend lines that guide us when we are watching the markets. The trend lines are not points where we just click buys or sells but areas of interest where we expect price actions.The trend lines also help us identify areas where we expect the market to reverse. Just remember that the market is often driven by people’s emotions. Trading Patterns have been in existence since memorial and don’t only appear in the markets,they can also be observed in the weather cycles, political cycles and in many other examples.
In our article today we will classify trading patterns into two categories i.e.. the continuation patterns and the reversal patterns.
Continuation patterns help us in taking entries that are in the direction of the trend while the reversal patterns indicate to us that the current trend is coming to an end and the price is about to reverse therefore helping us take trades that are against the trend. It is important for us to remember that both these trading patterns occur when there is a correction in the market and not the impulse. It has been easy for people to identify impulses but the problem comes when they are identifying when a correction is about to complete.Below I will only write on the patterns that I trade on
- Broadening tops and broadening bottoms
These two trading patterns are reversal patterns that show that the price is struggling towards the top/bottom.Always wait when the impulse is starting before entering the trade because you are trading against the current trend.
- Bump and run reversal pattern
- Ascending channels and descending channels
These two are also reversal patterns.
These are continuation patterns that indicate that the trend is going to continue. It is important for one to study when the flags or the other trading patterns are completing to avoid taking early trades. Flags can also form as flat channels
Having looked at the patterns, It is also important to note that we have two ways of placing our trades. We can at times chose to take trades on both break outs and risk entry positions. To be good at both this ways and understand when the corrections are ending I highly recommend more practice to my students.
The use of indicators can work for you in this cases here. The best indicator still remains the MACD. Please also remember we follow price and not the indicators because most indicators just show us what the market has already done. All this patterns can be found in our daily trade set-ups and appear in all time frames.
For more explanations and chart examples on both continuation and reversal patterns, check the notes here!
Thank you in advance team. Let us keep winning.